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U.S. Lumber Industry Challenges NAFTA in Lawsuit

A group of U.S. lumber companies filed a lawsuit, challenging the legality of the North American Free Trade Agreement (NAFTA).

By StaffDate Posted: 10/1/2005

A group of U.S. lumber companies filed a lawsuit, challenging the legality of the North American Free Trade Agreement (NAFTA).

NAFTA panels set up to settle the softwood lumber dispute with Canada overstep their authority and violate the U.S. Constitution, according to the lawsuit filed by the Coalition for Fair Lumber Imports. The coalition filed the lawsuit a federal appeals court in Washington, D.C.

At issue are recent rulings by NAFTA panels that said the U.S. violated trade rules in its process of applying tariffs on imported Canadian softwood lumber.

Canadian Trade Minister Jim Peterson called the lawsuit a “veiled attempt” to undo the victories Canada won under NAFTA.

Analysts say the U.S. lumber industry has an uphill legal fight. The constitutional challenge has “very few legs to stand on,” said Andreas Lowenfield, a professor at New York University.

In another development, the Bush administration said it is considering reducing tariffs on such goods as softwood lumber from Canada and cement from Mexico if construction needs spurred by hurricane Katrina cause prices to spike.

Earlier the World Trade Organization (WTO) ruled that the U.S complied with international law when it levied duties on softwood lumber imported from Canada. U.S. officials said the ruling vindicated their position while Canadian officials conceded it was a setback.

The U.S. adhered to international law when it issued a revised finding in late 2004 that softwood lumber imported from Canada threatened American lumber producers, the WTO panel ruled.

The ruling was an interim decision; a final ruling, which rarely varies from the interim finding, will be made public in October. Both sides can appeal.

Canadian officials downplayed the significance of the interim ruling and said lawyers already were preparing an appeal.

The ruling further complicates the already tangled legal decisions surrounding the trade dispute. A NAFTA panel had issued a seemingly contradictory ruling that was hailed by Canada. The NAFTA panel declared the duties were illegal under U.S. law, prompting the Canadian government to call for their immediate removal.

Meanwhile, the Canadian government and a coalition of exporters launched another legal attack against the U.S. in the ongoing dispute. They filed a lawsuit with the U.S. International Trade Court, demanding the return of tens of millions of dollars in import duties that have been funneled to U.S. industries.

The lawsuit, filed in federal court in New York, was brought by the Canadian government, the Canadian Lumber Trade Alliance, Ontario Lumber Producers, the Canadian Wheat Board and Norsk Hydro Canada Inc.

The so-called Byrd Amendment, which diverts punitive duties paid by foreign exporters to American companies that are hurt by cheap imports, does not apply to Canadian industries because of NAFTA, the Canadians contend in the lawsuit.

The lawsuit will change “the whole dynamic” of the trade dispute, said Carl Grenier, vice president of the Free Trade Lumber Council. “U.S. companies have to forget about getting their hands on our money,” he said.

The U.S. has collected about $5 billion in punitive duties on softwood lumber imported from Canada since 2002. Canada contends the duties are being collected illegally and should not be directed to affected American businesses.

The Canadian case is based on a ruling by the WTO in 2000 that declared the Byrd Amendment — named for West Virginia Sen. Robert Byrd — illegal because it subsidized U.S. industries through the import duties. NAFTA also exempts Canada from the amendment unless it is specifically notified, and Canada claims it was not.

Canada imposed retaliatory duties in May on up to $14 million of goods imported from the U.S. and is threatening to increase them to billions of dollars if the U.S. fails to comply with the WTO ruling on the Byrd Amendment.

Also, the U.S. Coalition of Fair Lumber Imports said that British Columbia is virtually giving away insect-damaged timber. Provincial incentives are designed to ensure that as much of the infested wood as possible is harvested before it loses its economic value, the coalition said. Canadian companies are getting the infested wood at sharply discounted stumpage rates even though it sells for the same price as normal green lumber, according to the coalition.

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